The growth and adoption of digital payment in Indonesia
The Covid-19 pandemic in 2020 catalyzed significant growth in digital payment usage globally, including in Indonesia. The rise in e-commerce and the need for contactless transactions drove this surge. Indonesia, Placed first in Southeast Asia and sixth globally in the number of start-ups, has seen robust digital market penetration, with digital payments being a major suite of offered products.
The introduction of the Quick Response Code Indonesian Standard (QRIS) in 2019 was a key milestone. QRIS aims to integrate national payment systems to provide more inclusive financial services. It ensures speed and efficiency in mobile transactions for buyers while enabling merchants, particularly micro, small, and medium enterprises (MSMEs), to receive payments in real-time. Of over 30.1 million merchants in the ecosystem, more than 90% are MSMEs.
Following QRIS, other payment methods like e-wallets (Dana, LinkAja), e-money (GoPay, OVO), and virtual account-based online transfers remain popular. E-money transactions grew by 43.35% year-over-year (YoY), totaling IDR 835 trillion in 2023, and are projected to increase by 25.77% in 2024. The Visa Payment Attitudes Study shows that e-wallet usage among Indonesians surged to 92% in 2023 across all age groups, except those aged 57-75. Virtual account transactions grew by about 7% YoY, accounting for 50% of the total payment volume for Xendit, a local payment gateway.
The challenges and barriers
Despite the promising growth, Indonesia still faces challenges to achieve a more inclusive digital payment ecosystem. Merchants’ digital payment methods utilisation is shown to still be heavily concentrated in Java Island. The latest BCG report highlights that the lack of differentiation among fintech applications disincentivizes usage, alongside concerns about security. Technical difficulties particularly deter only those aged 40 and above.
According to FICO Research, real-time payment scams are on the rise in Indonesia. 64% of respondents reported receiving suspicious unsolicited messages, and 49% indicated that their friends or family had fallen victim to scams. About 17% reported losing money through real-time payments for goods, services, or investments they never received, with 71% losing up to Rp 5 million (US$310.57) and 4% losing up to Rp 100 million.
Concerns about user data privacy are also significant, with 36% of Indonesians fearing fraudsters might open accounts in their names, though nearly 45% believe it is unlikely they have been victims of identity theft.
What can possibly cause the digital payment adoption gaps?
It is highly feasible that digital payment adoption gaps are influenced by network effects, where the value of a product or service increases as more people use it. In recent years, the surge of Indonesian digital payment methods such as QRIS, e-money, and e-wallet in Java island proves the relevance of network effect.
Nevertheless, network effects can exacerbate excess inertia. Excess inertia refers to the reluctance of users to switch from one technology or system to another, even if the new option might be superior. The resistance to change can be due to various factors such as familiarity, perceived switching costs, or a lack of trust in new technologies.
A study conducted by Schierz, Schilke, and Wirtz (2010) has highlighted that perceived security has a significant positive impact on the intention to use mobile payment services. Consumers who believe that a mobile payment service is secure are more likely to perceive it as useful and easy to use, leading to higher adoption rates.
If we look at the aforementioned barriers, this inertia needs to be explored as a foundational step to uncover the true underlying causes of adoption gaps in other parts of Indonesia.
The ongoing effort: Law No. 4 of 2023 on Financial Sector Development and Reinforcement (also known as “P2SK Law”)
The enactment of Law No. 4 of 2023, known as the "P2SK Law," is expected to bridge the gaps as this legislation emphasizes technological innovation while prioritizing safety, security, and digital financial literacy. There are four relevant articles that will act as the umbrella for future regulations and initiatives. First, Sandbox Scheme (Article 4) enables the testing of innovative solutions in a controlled environment to ensure thorough safety and security evaluation before wider implementation. Second, Regulatory Oversight (Article 6) establishes standards for safety and security protocols. The issuance of Central Bank Regulation no. 2 of 2024 reinforces these standards focusing on Information System Security and Cyber Resilience. Third, Article 7 mandates financial service providers to transparently disclose relevant information, and lastly Article 10 obliges payment providers to develop educational programs to enhance digital financial literacy among Indonesian consumers.
Although ambitious, implementing these provisions requires substantial coordination among stakeholders, adequate resource allocation, and ongoing monitoring to ensure regulatory compliance.
Conclusion: The success relies on multi-dimensional improvement
The success of digital payment adoption in Indonesia hinges upon a multifaceted approach. Meaningful efforts should be directed towards enhancing regional inclusivity, particularly targeting regions outside Java Island where adoption rates are lower. Targeted education and incentive programs for digital payment providers, merchants (especially MSMEs) and consumers could serve to overcome barriers to adoption. Additionally, addressing security concerns is paramount, given their pivotal role in driving adoption. Digital payment providers shall prioritize efforts to bolster security measures, in the form of employing robust authentication methods, encryption technologies, while also being mandated to develop transaction monitoring as well as alert systems for detecting suspicious patterns of transactions.
Digital payment providers must promote financial literacy initiatives to equip users with the necessary knowledge and skills to navigate the complexities of digital payments and safeguard against potential fraudsters. If needed, digital payment providers can use gamification in delivering the education materials. Finally, digital payment providers can consider adopting a user-centric approach, focusing on improving user experience and offering tailored solutions that cater to the diverse needs of Indonesian consumers. The QRIS barcode sticker which we often find in street hawkers is one of the successful examples.
In conclusion, by embracing a multi-dimensional approach and leveraging upcoming technical regulatory frameworks under P2SK Law are expected to boost a more inclusive and resilient Indonesian financial future.
*The writer is public policy and government relations practitioner at the first Indonesia’s b2b payment unicorn in Indonesia and is a co-founder of "Causas," a consultancy founded by young female experts who possess extensive expertise and background in policy gained through various roles in multinational corporations, technology firms, government bodies, and media outlets.*
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